05/28/2015

The U.S. Supreme Court just opened the door for a flood of new lawsuits against 401(k) plan sponsors. Three months after hearing arguments in Tibble v. Edison International, a lawsuit focused on whether plan fiduciaries have a duty to continuously monitor their investments under ERISA, the nine justices unanimously agreed that they do. What the Supreme Court failed to comment on — and what legal experts hope will be sorted out in forthcoming case law — is just what that duty should look like...

But many companies have been preparing for this fight, thanks to Tibble v. Edison and other similar cases, carefully monitoring procedures in order to back up investment choices in court if needed. The Supreme Court’s decision on Monday puts a kink in this strategy, however. As Houston-based attorney Jesse Gelsomini explains, now investments “must continue to be monitored for prudence under ERISA on an ongoing basis, even if there is no material change in circumstances.

"While the question of how exactly to conduct this oversight works its way through the courts, Gelsomini, a partner in Haynes and Boone’s employee benefits, ERISA and executive compensation practices, says companies might be well served by creating their own frameworks.

“Following this decision, each employer should review the 401(k) plan’s investment policy statement to ensure it contains clear guidelines specifying how often the responsible plan fiduciary must perform a comprehensive review ... and the steps to remove an investment if it is deemed imprudent,” Gelsomini says.

Excerpted from Institutional Investor. To read the full article, click here.

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